Friday, February 26, 2010
There may be some temporary interruptions in our website http://www.financialexecutives.org/ today (Friday Feb. 26) and tomorrow (Sat. Feb. 27) due to the move. Phone numbers and email addresses will remain the same. The new mailing address for the NJ office is:
1250 Headquarters Plaza
West Tower, 7th Floor
Morristown, NJ 07960
FEI Blog Featured In "Going Concern"
We reported last summer about a new publication called "Going Concern," in our post, Accounting Gets Its Own Tabloid. Today, we were honored to be the featured blogger in their "Five Questions For..." series. You can read the article here.
FAF, FASB React To SEC Statement On Global Accounting Stds.; FASB Releases ASU 2010-10, Defers FAS 167 For Certain Investment Funds
The FAF and FASB state that they "support the SEC’s view that a single set of high-quality globally accepted accounting standards will benefit U.S. investors, "and "support the SEC’s further consideration of the issues identified in the [SEC's] 'Work Plan' in making its determination on whether and how to transition the current financial reporting system for U.S. issuers to a system incorporating International Financial Reporting Standards (IFRS)." Additionally, they state, "As the FASB aims to complete in 2011 the important projects identified in our MoU with the IASB, we expect 2010 to be a pivotal year of progress... The FASB will continue to address reporting issues of critical importance to U.S. investors and financial markets while pursuing the international standard setting agenda." For futher details, read the FAF-FASB statement.
See also our related posts: FEI Recommends Three-Year Implementation Period For Suite of New Standards Coming Under FASB-IASB MOU; SEC Reaffirms - Contingent on 'Work Plan' and Convergence - Will Decide On IFRS In 2011; FEI, Other Organizations React To SEC Statement On IFRS
FASB Releases ASU 2010-10, Defers FAS 167 For Certain Investment Funds
On Feb. 25, FASB issued Accounting Standards Update No. 2010-10, "Consolidation (Topic 810): Amendments for Certain Investment Funds." (ASU 2010-10).
As described in an Action Alert sent by FASB on February 26: "Accounting Standards Update No. 2010-10 defers the effective date of the amendments to the consolidation requirements made by FASB Statement 167 [Amendment to FIN 46R] to a reporting entity’s interest in certain types of entities. The Update also clarifies other aspects of the Statement 167 amendments..... For many reporting entities (in particular, calendar year companies) these amendments are effective immediately."
Here are some excerpts from the ASU:
Accounting Guidance: "The amendments to the consolidation requirements of Topic 810 resulting from the issuance of Statement 167 are deferred for a reporting entity’s interest in an entity (1) that has all the attributes of an investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. The deferral does not apply in situations in which a reporting entity has the explicit or implicit obligation to fund losses of an entity that could potentially be significant to the entity. The deferral also does not apply to interests in securitization entities, asset-backed financing entities, or entities formerly considered qualifying special purpose entities...."
Disclosures: "The amendments in this Update do not defer the disclosure requirements in the Statement 167 amendments to Topic 810..."
Refer to ASU 2010-10 for full details.
In Case You Missed It...Blue Ribbon Panel Named-To Address Pvt Co. Accounting
In case you missed our earlier post on Friday: Blue Ribbon Panel Named - To Address Private Company Accounting
Earlier today, the members of the Blue Ribbon Panel on Private Company Accounting were announced by the cosponsoring organizations of the panel, the Financial Accounting Foundation, the AICPA, and NASBA. The three organizations announced in December that they were forming the panel to: "Provide recommendations on the future of standard setting for private companies, including whether separate, standalone accounting standards for private companies are needed." FEI had issued a statement in December, applauding the formation of the panel.
According to today's press release issued by the FAF:
Members of the panel represent a cross section of private company financial reporting constituencies, including lenders, investors, and owners as well as preparers and auditors...
...As announced last month, the committee will be chaired by Rick Anderson, chairman of Moss Adams, LLP, who is also a current member of the FAF Board of Trustees and the AICPA.
Panel and Observers
The eighteen-member panel announced today includes:
- Rick Anderson, Chairman, Moss Adams, LLP; Chairman of the Blue Ribbon Panel
- Billy Atkinson, Board Chair, NASBA
- Daryl Buck, Senior VP and CFO, Reasor's, Inc.
- Steve Feilmeier, CFO, Koch Industries
- Hubert Glober, Co-Founder and President, REDE
- David Hirschmann, President and CEO, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
- William Knese, VP, Finance and Administration, Angus Industries
- Kewsong Lee, Managing Director, Warburg Pincus
- Paul Limbert, CEO, WesBanco, Inc.
- Krista McMasters, CEO, Clifton Gunderson
- Michael Menzies, CEO, Easton Bank and Trust Company
- Barry Melancon, President and CEO, AICPA
- Jason Mendelson, Co-founder, Foundry Group
- David Morgan, Partner, Lattimore, Black, Morgan and Cain PC
- Terri Polley, President, FAF
- Dev Strischek, Senior VP, Corporate Risk Management, SunTrust Banks, Inc.
- Mark Vonnahme, Executive VP, Surety, Arch Insurance Group
- Teri Yohn, Associate Professor, Indiana University
Individuals appointed to the Blue Ribbon Panel serve in their personal capacity. Among the eighteen panel members, three of the appointees are also members of FEI: William Knese, VP, Finance and Administration, Angus Industries, Teri Yohn, Associate Professor, Indiana University, and Daryl Buck, vice-chair of FEI's Committee on Private Companies-Standards .
CPC-S is the national committee at FEI responsible for monitoring and developing positions on accounting, auditing and related initiatives that impact privately held companies.
Upon being named to the Blue Ribbon Panel, Buck said,
"I’m very pleased to have the opportunity to serve on the Blue-Ribbon Panel, as it considers the future of accounting standards for private companies in the U.S. The panel will be seeking to determine how best to meet the needs of those constituencies who use financial statements produced by private companies, and I’m looking forward to contributing my views to that effort. In addition to my personal experience as a private company CFO and as an auditor in public accounting, my ongoing role as vice chair of FEI’s Committee on Private Companies – Standards (CPC-S) will be very beneficial, as I will have a ready source of practical and technical input from my peers to share with the panel. I’m excited about getting started on this important endeavor.”
As noted in today's press release issued by the FAF:
The members of the Blue Ribbon Panel will be joined by several participating observers, including representatives of the U.S. Federal Financial Institution Regulatory Agencies Group and the U.S. Small Business Administration.
Panel aims to issue recommendations within a year
The work of the Blue Ribbon Panel is being fast-tracked. As noted in today's press release:
After its comprehensive review of issues affecting the current system of
standard setting for private companies in the United States, the panel will
issue a report containing its recommendations to the FAF Board of Trustees in
approximately one year.
Thursday, February 25, 2010
Accounting Standards Update No. 2010-09 was issued on Feb. 24, 2010. It describes amendments that clarify:
The amendments have the potential to change reporting by both private and public entities; however, the nature of the change may vary depending on facts and circumstances. All entities, both public and private, are encouraged to evaluate the effect of these changes as soon as practicable because, as discussed below, the amendments are effective immediately for all entities other than conduit debt obligors.
- Which entities are required to evaluate subsequent events through the date the financial statements are issued
- The scope of the disclosure requirements related to subsequent events.
When the Amendments Are Effective:
All of the amendments in this Update are effective immediately and shall be applied prospectively, except as follows.
The use of the issued date for a conduit debt obligor for conduit debt securities that are traded in a public market is required in interim or annual periods ending after June 15, 2010.
UPDATE ON FINANCIAL INSTRUMENTS
As reported today by Steven Burkholder in BNA's Daily Report for Executives, in FASB May Defer Date of Planned Financial Instruments Rules for Smaller Private Banks:
The Financial Accounting Standards Board tentatively decided Feb. 24 to delay the effective date of planned new rules on financial instruments for private banks and other private enterprises that have consolidated total assets of less than $1 billion.
Under the terms of FASB's preliminary decisions at its weekly meeting, such private entities would have a four-year grace period after the effective date—yet to be specified—for public entities and larger private banks and other companies to follow current, more cost-based recognition and measurement prescriptions.
However, the enterprises that would be afforded the deferral would have to disclose fair values of loans, at their exit prices, in footnotes to the financial statements.
Burkholder added there was a 'contentious debate' at yesterday's FASB board meeting over the deferral/scope exception. With respect to the upcoming proposed standard generally, which would require financial instruments (including loans and core deposit intangibles, which prompted the deferral noted above) to be carried at fair value, with certain changes in fair value recognized in Other Comprehensive Income (a component of equity) vs. Net Income:
[FASB Board members Leslie] Seidman and [Larry] Smith—who favor more of a cost-based approach for recognition and measurement of financial instruments—plan to write formal statements of their alternative, dissenting views on the overall approach to financial instruments to be proposed by FASB's majority, made up of Chairman Robert Herz and members Thomas Linsmeier and Marc Siegel. Alternative views registered in FASB proposals often presage formal dissents to final standards.
I encourage you to read Burkholder's article in its entirety (BNA subscription required) for other gems from the discussion at yesterday's FASB board meeting.
See also FASB's Summary of Board Decisions, which reports on the above matter, as well as other matters discussed at yesterday's FASB board meeting on the financial instruments project (including fair valuing liabilities), and on the separate project on disclosures of credit quality and the allowance for credit losses.
Wednesday, February 24, 2010
Financial Executives International (FEI), an association of senior financial executives, and other organizations released statements in reaction to the SEC's announcement. FEI's statement said:
FEI is pleased with the SEC's decision to issue a Statement informing the public of its position and plans with respect to its proposed 'IFRS Roadmap.' We applaud the SEC for developing a Workplan to address issues raised by FEI and others in response to the proposed IFRS Roadmap with respect to public companies. We also look forward to providing expert input on behalf of the issuer community to the SEC as it addresses the important questions in the Workplan, including the impact on issuers' controls and procedures, corporate governance considerations, cost and human capital considerations, the impact on other regulatory filings, as well as investor understanding and education issues.
Read more in these statements:
Financial Executives International (FEI)
American Institute of Certified Public Accountants
Center for Audit Quality (affiliated with the AICPA)
(NOTE: we will update this list tomorrow for additional press releases)
Separately, the CFA Institute (formerly called AIMR), issued a statement in advance of today's SEC meeting.
- reaffirming the Commission's support for a single, globally accepted set of accounting standards,
- describing issues that need to be analyzed, falling under six categories, in an SEC "Workplan," and
- describing events that need to occur between now and 2011, including by the SEC's study of certain issues identified in the "Workplan," and completion of the convergence projects on the FASB-IASB Memorandum of Understanding (MOU), to faciliate the SEC's decision in 2011 on whether to incorporate IFRS in the U.S. financial reporting model for SEC issuers. (NOTE: we corrected earlier version of this sentence for typos.)
SEC Chairman Mary L. Schapiro said that although "we do not have all the information" to make the decision on wheter to move to IFRS at this time, "we remain on a steady path to make the decision in 2011."
SEC Chief Accountant Jim Kroeker added, "The Statement notes, if it is determined in 2011 to incorporate IFRS [into the U.S. financial reporting system], the transition for U.S. issuers would be approximately 2015 or 2016." ** UPDATE: According to the SEC's press release issued this afternoon: "[I]f the Commission determines in 2011 to incorporate IFRS into the U.S. financial reporting system, the first time that U.S. companies would report under such a system would be no earlier than 2015. The Work Plan would further evaluate this timeline."Read more about the six categories in the SEC's Workplan, and the SEC's view on the role of the FASB in the event the SEC decides to incorporate IFRS into the U.S. system, in this FEI Summary. We anticipate to post additional information later today, in the summary on FEI's website, and in a subsequent blog post.
Monday, February 22, 2010
The President has also proposed a number of revenue raisers in the form of taxes and fees that will have a significant impact on senior financial executives and their companies. Read more in this FEI Summary.
Friday, February 19, 2010
The Commission will consider whether to publish a statement regarding its continued support for a single-set of high-quality globally accepted accounting standards and its ongoing consideration of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers.
Also on deck at the Feb. 24 open commission meeting: "The Commission will consider whether to adopt amendments to Rules 201 and 200(g) of Regulation SHO relating to short sale restrictions."
In related news on the IFRS front, see our blog post yesterday: FEI Recommends Three-Year Implementation Period For Suite of New Standards Coming Under FASB-IASB MOU, and see also WebCPA's wide-ranging interview of SEC Chief Accountant Jim Kroeker , written by WebCPA's Michael Cohn, published yesterday.
Thursday, February 18, 2010
FEI Recommends Three-Year Implementation Period For Suite of New Standards Coming Under FASB-IASB MOU
The CCR letter on effective dates of convergence standards, signed by CCR Chairman Arnold C. Hanish, recommends that the effective date and transition provisions of the major convergence standards be considered holistically, rather than on a standard-by-standard basis.
Specifically, CCR recommends that adequate time be provided for the body of converged standards issued under the MOU, through an aggregated effective date providing a three-year period for implementation, with early adoption permitted.
Additionally, as noted in FEI's press release, CCR recommended that the boards "permit preparers, when practical, the flexibility in choosing the method of adoption and the manner of initial adoption (retroactive restatement, cumulative effect, prospective, etc.)"
As further noted in FEI's press release, CCR filed a separate letter with FASB and the IASB "offer[ing] the Boards its assistance with the ongoing MOU projects through providing expert corporate representatives to work with the Boards' project managers, obtaining feedback from the analyst community, and continued quarterly meetings with FASB and IASB to provide further insight." See the CCR letter on MOU projects.
NOTE: See also our prior blog posts regarding the convergence projects under the MOU:
FASB, IASB Confirm Convergence By June, 2011 (Nov. 5, 2009), and
FASB Considering 'Big Bang' vs. Staggered Effective Dates (Jan. 27, 2010).
Additionally, see our most recent posts on FASB, IASB:
FASB Posts Update On Financial Instruments, Fair Value Projects
IASB Amends Constitution; Provides Update On Convergence, Funding
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Wednesday, February 17, 2010
Project Update: Fair Value Measurement and Disclosure (as of Feb. 2, 2010)
Project Update: Accounting for Financial Instruments (as of Feb. 12, 2010). Includes links to:
- Summary of Decisions Reached to Date (as of February 5, 2010)
- FASB Project Plan (as of February 5, 2010)
- FASB Outreach Summary (as of November 2009)
- Comparison of FASB and IASB models (as of November 2009)
- IASB Workplan: IFRS 9 Financial Instruments
The FASB is participating with the IASB in an Expert Advisory Panel (EAP) that will advise the Boards on the operational issues surrounding the IASB’s Expected Cash Flow approach and the FASB’s approach for determining credit impairments.
In light of the FASB’s goal to publish a comprehensive exposure draft on financial instruments in March 2010 and the IASB’s goal to publish an exposure draft on the remaining main phases of the project to replace IAS 39, Financial Instruments: Recognition and Measurement, in the first quarter of 2010, the Boards will first jointly consider hedge accounting issues relating to financial hedged items and issues that are more directly related to the Boards’ respective decisions to date on the classification and measurement models for financial instruments. The Boards will subsequently discuss other hedge accounting issues, including hedge accounting for nonfinancial hedged items and portfolio hedge accounting. The Boards expect to address all hedge accounting issues in the first half of 2010.
Regarding outreach to constituents during development of the project, FASB states:
The FASB has posted to its website a detailed description of its tentative approach to classification and measurement of financial instruments (see Summary of Decisions Reached to Date) as a way of informing interested constituents and obtaining early input from them.Results of the joint FASB-IASB board meetings this week will be posted in FASB's News Center.
The FASB will continuously update that description as the Board makes additional decisions.As another way of obtaining early input on tentative decisions reached and issues relevant to the Accounting for Financial Instruments project, the Board and staff have held informal discussions in addition to public roundtables with constituents. The Board and staff obtained input from various investors, preparers, auditors, regulators, and valuation specialists. The summary below is provided for the information and convenience of constituents who are following the project.The FASB will consider input received on its tentative model as well as feedback received on the IASB’s Exposure Draft and IASB redeliberations as it develops its proposed Accounting Standards Update.
My two cents (I remind you of the Disclaimer on the right side of this blog)
Maybe it's the sense of professional skepticism instilled in me as an auditor back-in-the-day (or in more recent years, in my forensic accounting classes at NYU's School of Continuing and Professional Studies), but whenever I see a document labeled "Reducing Complexity..." (such as: Reducing Complexity Discussion Paper; Reducing Complexity Comment Letters; Reducing Complexity Comment Letter Summary), in which 'reducing complexity' rests on a fundamental precept of 'simplifying' recognition and measurement by carrying all (or a substantial portion) of financial instruments at 'fair value' ... I think to myself ... there is 'complexity' (e.g., in the longstanding 'mixed attribute' model, in which some items are measured at historical cost, some at fair value, some at lower of cost or market, etc.), and then there's 'complexity' (i.e., that which is inherent to varying degrees in particular models of fair value, including models driven at determining the 'exit price' for financial instruments, a notion that hinges on liquid, orderly markets, in instances when the market is disfunctional, disorderly, or there is thin or nonexistent trading.)
So, just as they say, "Don't judge a book by its cover," I would say, read between the covers (if not between the lines) to reach your own informed judgment on matters such as the relative reduction (or addition) to complexity, and the related usefulness of the proposed standards, and share your views (whatever they may be) with the FASB and IASB since public comment is at the heart of due process, on which standards are supposed to be set.
Sanderson's article focused on the second point among the nine Constitutional changes announced by the IASCF on Feb. 15, specifically, that:
The Constitution will emphasise that convergence is a strategy aimed at promoting and facilitating the adoption of IFRSs, but is not an objective by itself.In the IASCF response to the FT, Zalm said:
I was surprised to read your interpretation of recent enhancements to the governance of the IASC Foundation (IASB softens stance on convergence), and in particular your assertion that a constitutional emphasis on adoption of International Financial Reporting Standards (IFRSs) represents a weakening of the Trustees’ support for the ongoing work to converge global accounting standards.
Nothing could be further from the truth.
The Trustees of the IASC Foundation strongly support the work plan that the IASB has established with the US Financial Accounting Standards Board, which will reduce the differences between and improve IFRSs and US standards. By reducing differences and thereby reducing any cost of transition, convergence will “promote and facilitate” the possible adoption of IFRSs.
The completion of the existing convergence programme will also achieve the objective set out by the G20 at their Pittsburgh summit.
For many other jurisdictions convergence is an important stepping stone on the path to adoption of IFRSs. The recent enhancements to the constitution of the IASC Foundation reinforce our commitment to this process.
Here is the list of all nine Constitutional changes agreed by the IASCF Trustees (following a period of public consultation during the past couple of years). The changes will take effect on March 1, according to the IASCF.
- Introduction of three-yearly public consultations on the IASB’s technical agenda: In addition to consulting the Trustees and its advisory council annually on the existing and future agenda, the IASB will undertake a three-yearly public consultation on its future technical agenda.
- Emphasis on adoption of International Financial Reporting Standards (IFRSs): The Constitution will emphasise that convergence is a strategy aimed at promoting and facilitating the adoption of IFRSs, but is not an objective by itself.
- A commitment to a ‘principle-based’ approach: The Constitution will call for IFRSs ‘based upon clearly articulated principles’.
- Specific designation of investors: The new Constitution specifically identifies investors as a target audience for financial information (in addition to other participants in the world’s capital markets and other users of financial information).
- A requirement for due process and the introduction of an emergency procedure: The Constitution will include a provision for an accelerated due process only in the most exceptional circumstances and only after approval by at least 75 per cent of the Trustees.
- Creation of vice chairs for both the Trustees and the IASB: The new Constitution will establish the possibility of two vice chairs for both the Trustees and the IASB. This will both ease the burden on the chair, and give the option of wider geographical distribution in the leadership.
- Improved language to account for a broad range of stakeholders, both by type and location: The Constitution will note the need to ‘take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings’.
- Reduction in duration of possible second term of IASB members to ensure practical experience: While the Constitution will still permit the possibility of a second term for IASB members, the Trustees have reduced the second term from five years to three for IASB members not serving as the chair or a vice chair.
- Names in use across the organisation to be streamlined: The names in use across the organisation will be more closely aligned with the standards. The IASC Foundation will become the IFRS Foundation, as soon as the practical arrangements can be made. The interpretations committee and advisory council will be known as the IFRS Interpretations Committee and IFRS Advisory Council, respectively. Stakeholders supported retaining the name of the IASB, and the Trustees concurred.
In related news, the IASCF recently posted an updating on its funding status, listing the amount of funding coming from different geographic jurisdictions - some which have mandatory fees in support of the IASCF, others which have entirely voluntary sources of funding for the IASCF (such as companies and associations in the U.S.) See the IASCF Funding Update.
Tuesday, February 16, 2010
However, there's been less reporting on the SEC's Feb. 2 Order approving the FASB's annual support fee, and in the process, continuing to affirm that the FASB meets the requirements for a standard-setter as specified in Section 109 of the Sarbanes-Oxley Act. (TheCorporateCounsel.net blog previously reported on this development.)
The Order issued by the SEC is a fairly routine act, but significant nonetheless in the SEC's granting FASB's continued financial (via the FASB support fee charged to public companies) and authoritative status.
The decision for FAF to take on responsibility for maintaining the U.S. GAAP XBRL taxonomy, and listing positions for which it will hire experts to address this task, was no doubt taken into consideration in the FASB's Accounting Support Fee, thus connecting the two announcements noted above: the FAF announcement re: XBRL, and the SEC Order re: FASB budget.
· Feb. 16, 2010: Reg S-K Sections 116, 117, 119; Form 8-K, Section 121A
· Jan. 20, 2010: Reg S-K Sections 116, 117, 119, 128A, 133; Proxy Disclosure Enhancements
· Jan. 15, 2010: Non-GAAP Financial Measures (same link as above, January 2010 updates)
· Dec. 22, 2009: Proxy Disclosure Enhancements Transition
The full text of the Dec. 2009-Feb. 2010 C&DI updates has been posted in the Summary: "SEC Updates Compliance And Disclosure Interpretations" posted on FEI's website, http://www.financialexecutives.org/.
Investor Advisory Committee To Meet
In other SEC news, according to this Feb. 2 Sunshine Act Notice, the SEC's Investor Advisory Committee (IAC) will hold its next meeting on Feb. 22. Items on the agenda include:
- consideration of a Committee recusal policy;
- report from the Education Subcommittee, including a presentation on the National Financial Capability Survey;
- report from the Investor as Purchaser Subcommittee, including a discussion of fiduciary duty and mandatory arbitration;
- report from the Investor as Owner Subcommittee, including recommendations for the Committee on Regulation FD and proxy voting transparency, as well as reports on a work plan for environmental, social, and governance disclosure and on financial reform legislation; and
- discussion of next steps and closing comments
Friday, February 12, 2010
By people like you,
We enjoy bringing you news,
The whole year through.
We'll be back to our usual reporting of accounting and regulatory developments in our next post.
In the meantime, Happy Valentine's Day to all of our readers, and if you missed our post earlier this week, here's a Valentine's Day treat for you: the world's first music video about accounting, filmed in Second Life.
Wednesday, February 10, 2010
The song (a parody of "If I Were a Carpenter") tells the story of two auditors (would-be auditors) in love, who view their relationship through the lens of accounting and auditing. They look for 'evidence' of each other's love, worry about 'second guessing,' and wonder if they'll get 'sale treatment' (get married), or only be "borrowed."
Here are links to the LYRICS and LINER NOTES.
Second Life - a 'virtual world' created by Linden Lab, is a place where individuals, companies, and any organization or group can interact online via creating an avatar, which can be designed to look like you, or not.
The Maryland Association of CPAs (MACPA), creator of CPA Island, the Second Life Association of CPAs, and a leading force in continuing education, networking, and advocacy on behalf of the auditing profession (for CPAs in audit firms, and in industry), served as Producer of the "If I Were an Auditor" music video. Steven Zelin, "The Singing CPA," served as co-musical director with me.
An eclectic ensemble cast, "The MACPA Players & Blogger Friends," was then formed, featuring A-list bloggers and MACPA staff. (Additional bloggers had scheduling conflicts precluding them from participating in the production, but provided moral support to their colleagues in their 'acting' debut.) Although I had met half the bloggers before in various venues (Tom Hood, Bill Sheridan, Colleen Cunningham, Gail Perry, Tom Selling, Mark Jankowski), it was the first time I 'met' the other bloggers (abeit virtually, in Second Life) who I only knew from their blogs, twitter, etc., including Michelle Golden, Dave Albrecht, and Darla Sycamore.
The 'music video' we did may seem like a lark to some, but we 'gotcha to look,' right? Moreover, there is real value in more 'serious' use of Second Life for training and networking purposes, and good examples of this are programs held in MACPA's CPA Island, and Second Life Roundtables produced by the FASB Research Initiative, coordinated by Cornell University's Rob Bloomfield. A major plus for those not ready for Second Life, who have interest in the speakers featured on some of these Second Life programs, is that simultaneous webcasting and archived webcasts are often available, so you can tune in via webcast if you're not ready to participate via Second Life.
There is admittedly a learning curve to using Second Life (downloading the program, creating an avatar, learning how to navigate or sit, stand, walk; getting a headset with a microphone if you want to use 'voice chat' in addition to text chat), but the benefits are a feeling of a higher level of engagement, like 'being in the room' with the other participants, vs. being on a conference call or viewing a webcast.
Below is a list of the full cast and crew for "If I Were an Auditor."
PRODUCTION TEAM: Maryland Association of CPAs (MACPA) www.macpa.org
Tom Hood, CEO, MACPA; MACPA Second Life production team: Megan Gratz, Editor, Mike Tobias, Video Production, Andrew Hood, Set Designer, Thomas Hood, Avatar Training. MUSICAL C0-DIRECTORS: Steven Zelin, "The Singing CPA" Edith Orenstein, FEI Financial Reporting Blog . Audio Recording made at: Rob Taube Words and Music.
Lead actors (avatars): Dee Day, Conference Manager, MACPA, in the role of 'The Bride';
Mark Jankowski, Co-Founder and President, Shapiro Negotiations Institute, as 'The Groom'
Bloggers in cast: Dave Albrecht, Concordia College, author of blog: The Summa; Colleen Cunningham, Global Managing Director, Finance and Accounting, Resources Global Professionals, Resources Global Finance and Accounting Blog ; Michelle Golden, Golden Practices Blog; Edith Orenstein, FEI Financial Reporting Blog; Gail Perry, Managing Editor, Accounting Web; Tom Selling, author of The Accounting Onion; Bill Sheridan, CPA Success (MACPA); Darla Sycamore, IFRS News and Views and Many Hatty Returns; Mark Jankowski, Co-Founder and President, Shapiro Negotiations Institute, SNI Blog; Steven Zelin, "The Singing CPA."
Read more about the video and see some photos from the video shoot at these links:
If I Were an Auditor: Introduction, Cast and Crew ; If I Were an Auditor: Lyrics
If I Were an Auditor: Liner Notes ; If I Were an Auditor: Photo shoot: MACPA Flickr page
Thanks to MACPA, Steven Zelin, Rob Taube Words and Music and everyone in the "MACPA Players and Blogger Friends!"
Saturday, February 6, 2010
In Region Hasn't Seen This Much Snow Since 1922, WTOP's Nathan Hager tells the story behind the current record-holder, the Knickerbocker Storm of 1922, expected to turn over the crown to this weekend's storm: "Twenty-eight inches of snow fell from Jan. 27 to 28 that year , killing 98 people inside the packed Knickerbocker Theater in Adams Morgan, at the time Washington's largest and newest moviehouse. The roof collapsed and the building was destroyed under the weight of all that snow." He adds, "The threat of roof collapse along the lines of the Knickerbocker incident has lessened over the past 88 years. Buildings are built to better standards in 2010."
PLI - perhaps not surprisingly as an organization dedicated to lawyers - took no chances of any untoward snow-related events impacting its speakers or attendees at its conference venue, the International Trade Center; and in consideration of impending air, rail, and local transport issues (see Washington DC Paralyzed as Snow Piles Up), (and other potential storm-related issues, including potential power interruptions) took what appears to be the unprecedented move of cancelling Day 2 of its two-day conference. Similarly, the SEC Alumni Association (ASECA) cancelled its annual dinner slated to take place Friday evening at the International Trade Center. NOTE: Both organizations (PLI and ASECA) intend to reschedule the cancelled events, as noted on their websites.
Nevertheless, neither rain, nor snow, nor sleet could stop Day 1 of PLI's SEC Speaks, and thanks to the wonder of simultaneous webcasting, we were able to catch some of the highlights, particularly with respect to the Accounting Panel, as noted further below.
Highlights of Highlights:
IFRS Roadmap, Auditor Independence, Textron, Venezuela, Fair Value
Within the highlights of the Accounting Panel further below, I would call to your attention in particular Chief Accountant Jim Kroeker's remarks on the status of the proposed IFRS Roadmap - in which he notes the SEC staff is currently developing a 'workplan' to address structural and transitional issues identified in comment letters. He also noted that, as the SEC continues to focus on the objective [presumably the objective of a single set of global accounting standards], it will be with an eye toward "mak[ing] sure it is in the best interests of the capital markets and investors."
I would also point out remarks of Jeff Minton, Chief Counsel in the Office of the Chief Accountant, on some auditor independence issues the SEC is seeing, as well as his reference to the Textron case (which indirectly relates to matters of 'cooperation' discussed under the separate Enforcement panel).
Other hot topics include disclosures relating to currency valuation issues in Venezuela, discussed by Corp Fin Chief Accountant Wayne Carnall, and an interesting question 'backtesting' fair values raised by former Commissioner Cynthia Glassman, a commentator on the accounting panel.
Upcoming And Continuing Initiatives
SEC Chairman Mary L. Schapiro, providing the opening address at Day 1 of the SEC Speaks conference yesterday, emphasized changes she has implemented to strengthen the agency since taking its helm one year ago.
Among the many upcoming and continuing initiatives listed in her remarks, "Looking Ahead, Moving Forward," here are a few that Schapiro listed:
- Short Sales: ...[I]n the past year, we adopted rules that seek to reduce the potential for abusive "naked" short selling in the securities market. These rules have significantly reduced the number of times short sellers failed to deliver securities. Looking ahead, in the coming weeks, we will consider proposals to restrict the practice of short selling.
- NRSROs: Also, in the year ahead, I hope we can adopt a strong set of rules that would create an even more robust regulatory framework for credit rating agencies — a framework that includes further measures designed to improve the quality of ratings by requiring greater disclosure, fostering competition, helping to address conflicts of interest, shedding light on rating shopping, and promoting accountability.
- Proxy Access: And, I am hopeful that we will adopt rules to facilitate the effective exercise of the rights of shareholders to nominate directors to the Boards of the companies they own. This so-called proxy access rule is designed to increase shareholders' ability to hold boards accountable.
- Money Market Funds: More recently, we adopted rules that will make money market funds more resilient by strengthening their credit quality, liquidity and maturity standards. Our rules also establish a new on-line disclosure regime for money market funds — including disclosure of a fund's "shadow" or mark-to-market NAV — and our rules take steps to limit the disruption caused by any fund "breaking the buck," or falling below the standard $1 net asset value.... Looking ahead, we will be considering yet more measures to address money market fund risk, especially the risk of a run on money market funds. In particular, I have directed our staff to examine the merits of a floating, mark-to-market NAV for money market funds, rather than the stable $1 price. Other ideas under consideration include mandatory redemptions-in-kind for large redemptions (such as by institutional investors); "real time" disclosure of "shadow" NAV; a private liquidity facility to provide liquidity to money market funds in times of stress; and a possible "two-tiered" system of money market funds, with a stable NAV only for money market funds subject to greater risk-limiting conditions and possible liquidity facility requirements.
Among other issues the SEC will tackle, detailed further in Schapiro's remarks:
- Market Structure (including high frequency trading, flash orders, and more),
- Consolidated inter-market audit trail for market surveillance conducted by self-regulatory agencies (consideration of building a consolidated intermarket audit trail)
Challenges In Reaching Consensus
Before we move on to the other Commissioner's remarks and highlights from the Accounting Panel, we'd like to note that throughout its history - to varying degrees based on particular issues and commissioners - the five-member Commission has sometimes faced challenges in reaching consensus on rulemaking initiatives and other issues. This balancing of different points of view is, in part, hard-wired into the commission's design, intended as a bipartisan commission, as described on the SEC website:
The Securities and Exchange Commission has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate. Their terms last five years and are staggered so that one Commissioner's term ends on June 5 of each year. To ensure that the Commission remains non-partisan, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC's top executive.
Kara Scannell notes some of these challenges in her article on Page B1 of today's Wall Street Journal, SEC Discord Could Stymie Schapiro's Efforts. (Hat tip to Prof. Bob Jensen who highlighted the article on the AECM listserve earlier today.)
Some of what Scannell refers to as 'discord' among the commissioners, includes the 3-2 vote last week (along party lines) in favor of releasing Interpretive guidance on climate change disclosures. As noted in Commissioner Kathleen Casey's remarks at the Jan. 27 open commission meeting:
There is undoubtedly a constituency that is interested in, and has long pressed the Commission to require, more extensive disclosures on environmental issues in order to drive particular environmental policy objectives. The issuance of this release, however, at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux, makes little sense.
Most importantly, I do not believe that this release will result in greater availability of material, decision-useful information geared toward the needs of the broad majority of investors.
At the SEC Speaks conference yesterday, Casey outlined a 'top 10' list that she said should guide the commission in rulemaking and other initiatives, reinforcing some of the points made in her earlier remarks on Jan. 27. (If Casey's remarks at SEC Speaks are posted on the SEC website, we will add a link here.)
Separately, Commissioner Elisse Walter emphasized in her remarks at the SEC Speaks conference how the agency's due process (i.e. reaching out to constituencies formally through the comment letter process on proposed rulemaking, and informally through other dialogue with industry, investor, and other groups and individuals) supports the commission's rulemaking objectives and mission. (If Walter's remarks are posted on the SEC website, we will add a link here.)
Additionally, Commissioner Luis Aguilar's remarks appeared directed at the SEC and the broader regulatory and legislative community as well, in calling for decisive action on financial regulatory reform.
[D]espite the intense focus on financial reform over the last year, very little has changed. Last year, I stood here and spoke about the need for sustainable regulatory reform oriented towards investors. It is clear that the need is even greater today.
John Wooden, the legendary UCLA basketball coach, used to say: "Never mistake activity for accomplishment." This adage perfectly sums up the last year. While there was much activity this past year, very little has actually been accomplished. There have been many speeches given and many preliminary steps taken toward regulatory reform, but for all the activity, reform itself has yet to be achieved. For example, despite the clearly demonstrated need, OTC derivatives, hedge funds, and municipal securities markets still lack appropriate regulation, and our inspection and enforcement efforts in these areas continue to be severely undermined.
Moreover, there are those who are using the process of reform as an opportunity to weaken strong investor-focused laws arising from lessons learned in prior crises. In my remarks today, I will highlight the progress we have made and the distance we have to go.
Also slated to provide remarks on Day 1 of the SEC Speaks conference was Commissioner Troy Paredes. (If Paredes' remarks are posted on the SEC website we will add a link here.)
Highlights From Accounting Panel
In addition to the Chairman's and Commissioner's remarks, Day 1 of the SEC Speaks conference included plenary session panels on Accounting, Enforcement, Corporation Finance, and Trading & Markets. The panels featured senior staff from those divisions and offices, with former SEC chairmen and commissioners serving as commentators. Additionally, a number of breakout group/workshops on the above topics were slated to take place at the end of the day.
Following are highlights from the Accounting Panel, featuring remarks by Jim Kroeker, Chief Accountant, Office of the Chief Accountant, Jeff Minton, Chief Counsel, Office of the Chief Accountant, Wayne Carnall, Chief Accountant, Division of Corporation Finance, Jason Flemmons, Associate Chief Accountant, Division of Enforcement, and Rick Sennett, Chief Accountant, Division of Investment Management. Commentators on the Accounting Panel included former Commissioners Roel Campos, Ed Fleischman and Cynthia Glassman. (NOTE: items shown in "quotes" are direct quotes of the speaker.)
James Kroeker, Chief Accountant, Office of Chief Accountant
Investor views preeminent: The SEC wants input from all constituents on rule proposals, other matters; "I highlight investors because their perspective ought to be preeminent.”
Reach out: Issuers, auditors are encouraged to reach out formally and informally to OCA, such as through the 'preclearance' process.
"Fair Value is Here to Stay," said Kroeker, adding it is important for people to monitor, comment on FASB and IASB proposals.
Former Commissioner Cynthia Glassman asked if the SEC has ‘backtested’ fair value amounts, i.e., "what they ultimately turned out to be worth, to see if it is an appropriate measure going forward.” Kroeker replied, “That is something the Division of Corporation Finance considers in terms of its disclosure rules, what entities are doing to ‘backtest,’ if you will, Fair Value.” He added, “the objective is not one of using hindsight… [or] calling into question judgments reached at Dec. 31, 2009; if an entity later sells [the asset] but [the amount at which it is sold] differs from the estimate, that doesn’t immediately call into question the estimate.”
Wayne Carnall of the Division of Corporation Finance added, “Values are constantly changing; that does not automatically mean [the estimate was] wrong.” However, Carnall noted, “if we see something unusual.. we ask lots of questions,.. about compliance with FAS157 [Fair Value Measurement]... .if ...looks contrary to market expectations, we will certainly ask questions in that regard.”
SEC IFRS 'Workplan' Being Developed
Kroeker said that, as a result of analyzing the 238 comment letters received on its proposed IFRS Roadmap, staff from the SEC’s Office of Chief Accountant, Division of Corporation Finance, Office of International Affairs, and Division of Enforcement are working closely together, “developing a workplan to focus on what are the transitional, structural issues that need to be addressed, focus[ed] on,” with respect to the IFRS Roadmap.
He defined 'structural' issues as: ‘do we [presumably, does the IASB] have sufficient independence, accountability to securities regulators or to those charged with setting accounting standards in capital markets?" ‘Transitional issues’ were defined by Kroeker by way of these examples: "if we move to IFRS in the US , how [would it] impact things like regulatory capital requirements, would you be required or permitted to use [IFRS] in Call reports for financial institutions; or [for tax/IRS purposes] LIFO inventory… LIFO isn’t an option under IASB standards, what would that do to a $ billion dollar-plus tax benefit because of LIFO inventory."
In general, Kroeker noted, "We should continue to focus on this objective" - [although he didn't specify 'the objective' - it is presumably the achievement of a single set of global accounting standards] - “but if we do, to make sure it is in the best interests of the capital markets and investors … and if it can’t be, how do we identify what those are.”
Pursue Convergence Around High Quality Standards
“Notwithstanding any of the follow-up to the [IFRS] Roadmap,” said Kroeker, “I believe convergence is an objective we have to continue to pursue,” noting that “decisions in the US are impacted by standard setters globally and vice versa.”
Referencing “pressure put on the IASB” to permit certain reclassifications, and pressure put upon the FASB and the IASB more generally calling for a ‘level playing field,’ Kroeker said, “I think in some cases… [there is] pressure to push to the lowest common denominator.” He emphasized, “convergence..is important... but around a high quality set of standards.. insuring it isn’t taking this piece of US GAAP and this piece of IFRS.. that is the worst piece… and combining [those]; that wasn’t [the goal] of convergence, and won’t be going forward.”
What Should Companies Do Now?
Kroeker observed, "[During] this period of ‘consideration and uncertainty…” until the SEC makes its next move on the IFRS Roadmap, some companies are getting questions, such as 'should we engage people now to put in new systems' to prepare for a move to IFRS. "My advice," said Kroeker, "is: (1) Expect time to prepare [for IFRS]; we understand, [it is] very clear in comment letters, people will need time to prepare if the decision is to move to a global set of standards.(2) IASB and FASB have a number of projects on their agenda what would fundamentally change.. [accounting]… .so investing in new systems [now] would [seem] to be premature. (3) (as noted above) monitor FASB and IASB [proposals]… to comment [on them]"
Former Commissioner Roel Campos asked how issues of practicability and transition are being considered, particularly with respect to smaller public companies and private companies.
Kroeker responded, "We have to arm ourselves with real data, study what would be the real impact." He added, "Our responsibility is financial reporting for public companies, but I don’t think we can be blind to the impact on small business, and private companies." Campos commented, "Consider how many small public companies there are...." Kroeker replied, " we have more important, first order issues, structural [issues], and should we continue to pursue [the objective]."
Other matters covered by Kroeker included "OCA Considerations in Evaluating Accounting Issues," and a brief update on the PCAOB. He described the PCAOB as having an "aggressive and appropriate standard-setting agenda" including development of risk assessment standards, including as relate to fraud risk, and consideration of engagement partner signature.
Jeff Minton, Chief Counsel, Office of Chief Accountant
Auditor Independence issues: Companies contemplating going public, should keep in mind: they will need 3 years of audited financial statements, by an auditor that meets SEC and PCAOB independence requirements, which are more stringent than AICPA requirements for private company audits.
Minton warned, "A lot of people, companies, counsels, underwriters, want to make sure there is no speed bump on the road [to going public]... there could be no worse speed bump than an auditor [who] may have done prohibited services or bookkeeping, may have provided tax prep services, and prepared the tax footnote for the financial statements, common in private companies - prohibited in public companies." He added, "The PCAOB has a requirement, when an auditor is taking a PCAOB engagement, it must give a communication to the issuer at that time with matters that might affect independence; we have seen some issuers have ongoing auditors and don’t think they have to have that communication, and it is only near the end when bumped up to the National office that they realize they have these problems, from engaging a GAAS audit [under AICPA standards] to a PCAOB audit, you could have found that out in advance, planning is important… so you don’t have to find an auditor to audit the past three years financial statements."
On the flipside, for companies that are struggling in this economy, Minton reminded the group, "If you have a cash strapped client, you can’t use shares to pay your auditor, you can’t have any equity ownership in the client, if you think a company is going to lose their auditor by not paying fees, don’t pay [the auditor] in shares," as that violates the auditor independence rules.
Textron Case; IRS proposal: Minton very briefly reviewed some developments in the Textron case and mentioned a related IRS proposal that was recently issued:
- "The First Circuit ruled there was no work product protection for tax accrual workpapers... prepared for ... financial statements, not in [regard to] litigation."
- "About a dozen industry groups, including the ABA [American Bar Association], and FEI, [Financial Executives International] have filed friend of the court briefs for the Supreme Court to pick it up." [NOTE: see our related blog post.]
- "The IRS, just last week, released an announcement seeking comment on … having a schedule to corporate tax returns that would itemize items company has identified, when thinking about FIN 48 and preparing reserves, would have to itemize the various transactions that went into that reserve calculation." [NOTE: see our related blog post.]
Wayne Carnall, Chief Accountant, Division of Corporation Finance
Carnall reviewed recent items issued by Corp Fin, and noted updates to Corp Fin's Financial Reporting Manual will be issued quarterly.
Suggestion for responding to Corp Fin Comments on Filings: Carnall said it is in the mutual interest of the issuer and the SEC "to make the process as efficient and effective as possible." He noted, "If we get to a point where we say you need to revise your financial statements, lo and behold, the submission [from the company in response to the Corp Fin comment] changes dramatically, the response becomes far more comprehensive." He advised, "I encourage people to make your last comment letter, your first comment."
10-K Reminders: Items to consider include: Impairment of goodwill; Accounting for income taxes; Accounting for income taxes; Going Concern; Pension (assumptions, curtailments), Segment reporting, Other Than Temporary Impairment (OTTI), Materiality ('SAB 99' memos), and Venezuela currency issues (detailed below).
Venezuela currency issues:
Carnall said he has spent a "fair amount of time talking about recently, some issues in Venezuela," where there was "a perfect storm of events, a dual rate system a number of years, and as of January 1, 2010, as a result of accounting rules, they [Venezuela] become[s] a highly inflationary economy." Thus, he noted, "All transactions on December 31 that were measured in Bolivars, are now measured in U.S. dollars as of January 1." He continued, "Then, shortly after year-end, [Venezuela's] President Chavez announced a devaluation of the official currency, that cut it in half."
He added:"We have seen a number of companies issuing press releases," noting, "what has surprised us was lack of disclosure we had seen previously."
Referencing a Corp Fin workshop scheduled to take place at the PLI conference at the end of the day on Friday [in-person workshop, not webcast by PLI], Carnall said, "Craig [Olinger] will talk about this: We will expect companies to disclose a fair amount about this; while Venezuela may have been insignificant with respect to sales, some of the charges we have seen.. [appear] material... expect more disclosure, losses and currency fluctuations are by no means done [over] in Venezuela; look at the Caterpillar case, it is very similar."
Richard Sennett, Chief Accountant, Division of Investment Management
Sennett highlighted new rules on audit and internal control reports for certain investment managers that serve as custodian, or have affiliate that serves as custodian.
Jason Flemmons, Associate Chief Accountant, Division of Enforcement
Flemmons highlighted various cases in which issuers and auditors were charged with violating securities laws, including as relate to fraudulent financial reporting, and auditor independence.
More From SEC Speaks
The Accounting Panel covered above was just one panel from Day 1 of PLI's SEC Speaks conference. The webcast of the entire conference, including all panels, the Chairman's and the Commissioners' remarks, will be available on a CD on March 5 (or DVD on March 19) for those interested in the entire proceedings. Further info is available on PLI's website, http://www.pli.edu/.